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The Coca-Cola Company agreed to a cease-and-desist order from the SEC regarding channel stuffing by the company from 1997 through 1999. According to the Administrative Order (here) issued today, Coke used its Japanese subsidiary (Coca-Cola (Japan) Co. -- CCJC) to pump up its syrup sales as volume began to diminish in 1996 in the following way:

At or near the end of each reporting period between 1997 and 1999, Coca-Cola, through its officers and employees implemented a "channel stuffing" practice in Japan known as "gallon pushing." In connection with this practice, CCJC asked bottlers in Japan to make additional purchases of concentrate for the purpose of generating revenue to meet both annual business plan and earnings targets. The income generated by gallon pushing in Japan was the difference between Coca-Cola meeting or missing analysts’ consensus or modified consensus earnings estimates for 8 out of 12 quarters from 1997 through 1999.

The channel stuffing resulted in the issuance of misleading financial statements for two year. The Order essentially requires the company to continue to follow revenue recognition policies instituted in 2000, with no fine or other remedial requirements. More importantly for Coke, the Department of Justice dropped its criminal inquiry into the accouting issues (see company press release here). (ph)